HB 381 exempts Alaska LNG project property from municipal taxes, replaces with volumetric splits

HB 381 would exempt covered Alaska LNG project property from municipal property taxes and replace that structure with a volumetric tax whose revenue allocations are fixed in statute and change substantially between construction and full LNG operations.

Under current law, the state levies a 20-mill property tax on oil and gas infrastructure and allows municipalities a credit for local taxes paid. Dan Stickel, chief economist with the Department of Revenue, explained the mechanics at a June 15 Senate Finance Committee hearing: "The state assesses the value and appraises the value of all the oil and gas property, we levy a 20 mills property tax on that property. The way it works in practice is we allow a tax credit for municipal taxes paid."

HB 381 ends that structure for Alaska LNG project property. Pipeline infrastructure subject to the alternative volumetric tax, or AVT, is exempt from municipal property taxes under AS 29.45. The bill also includes a temporary tax abatement period before the AVT begins. That abatement ends on the earlier of the first day of a consecutive 30-day period in which the project achieves a throughput of 500,000,000 cubic feet of natural gas per day, or five years after commencement of commercial operations of phase one.

The tax changes are conditional and take effect only if specified prerequisites are met before January 1, 2032, including project developer payments of $40 million, project labor agreement commitments, a Fairbanks spur-line commitment, and a 180-day equity-option window for the state and municipalities after a final investment decision on phase one. The bill also creates a municipal impact grant fund to address verified construction impacts on affected boroughs and establishes the Alaska affordable heating fuel fund to reduce heating costs in areas without direct access to North Slope natural gas.

Phase 1 Allocations

The allocations differ sharply by phase. During Phase 1, before LNG plant operations begin, the North Slope Borough receives 6 percent of AVT revenue, with 47 percent each going to pipeline-mileage municipalities and community assistance. The state receives no direct general fund share in Phase 1.

Phase 2 Allocations

Once Phase 2 LNG exports begin, the formula shifts to fixed borough allocations. Stickel described those numbers at a June 27 conference committee meeting: "Once LNG export operations begin, there would be another set of formulas with 48.4% to the Kenai Peninsula Borough, where the LNG export plant would be located, 27% to the North Slope Borough, where the gas treatment facility would be located, 5.6% would be retained by the state, and then 9.5% would be shared to communities and the Unorganized Borough based on pipeline mileage, and the remaining 9.5% would be shared with the community assistance program."

The Phase 2 base rate is set at $0.106 per thousand cubic feet. The rate doubles ten years after first Phase 2 gas, with that increment going to community assistance, and doubles again on January 1, 2060, with the full 2060 increment going to the state general fund.

Deadline and Revenue Estimates

The Department of Revenue estimated the legislation could raise more than $26 billion in tax and royalty revenue over 30 years. The conference committee substitute sets a construction deadline of December 31, 2034. The AVT framework terminates if construction of a gas pipeline associated with phase one has not been completed by that date.